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Asian airline stocks look poised for takeoff, though they won't all have the same angle of ascent.

Relatively low fuel prices, recovering global economies, and growing travel to and from Asia should help lift the sector. "When load factors start to improve and you have lower fuel costs, you can expect a sharp turn in earnings," says Paul Wan, a regional-airlines analyst for CLSA in Hong Kong who thinks the carriers are close to that point.

The region's carriers had slightly disappointing first-quarter results, mostly because of the lag effect in fuel costs: Airlines tend to buy fuel well in advance and therefore pay an averaged price that doesn't fully reflect recent declines. Jet-fuel prices have fallen 7% year over year and are off 15% from last year's highs. "The good news is that premium travel is starting to pick up, particularly within Asia and U.S. routes from Asia," says Mark Webb, HSBC's Asian airlines analyst. Load factors are up 2% year over year. "We will start to see some of that reflected in the earnings in the next quarter as well as in stock prices," he says.

One head wind for Asian carriers: cargo. Softer demand for Asian goods from developed economies in the West have been weighing on cargo yields. Capacity is a key issue for cargo. Until a few years ago,
Boeing's
BA 0.8109510834306475%Boeing Co.U.S.: NYSEUSD155.39
1.250.8109510834306475%
/Date(1481234590294-0600)/
Volume (Delayed 15m)
:
2873804AFTER HOURSUSD155.66
0.270000000000010.1737563549777978%
Volume (Delayed 15m)
:
54566
P/E Ratio
23.66008892137158Market Cap
95901426791.2805
Dividend Yield
2.805843361863698% Rev. per Employee
587720More quote details and news »BAinYour ValueYour ChangeShort position
(ticker: BA) 747-400s, which carry 10 to 12 tons of cargo in their holds, were the main war horses of Asian carriers' long-haul fleet. Their successor, Boeing's 777-300 ER, has 12% to 15% fewer seats but can carry up to 25 tons, or twice as much, says Webb. "There is now a lot of empty-belly capacity particularly between Asia and Europe," he notes.
Singapore AirlinesC6L.SG -1.25%Singapore Airlines Ltd. ADRU.S.: OTCUSD13.43
-0.17-1.25%
/Date(1481152810000-0600)/
Volume (Delayed 15m)
:
100
P/E Ratio
13.306251857723174Market Cap
8221460158.09094
Dividend Yield
1.87072226358898% Rev. per Employee
445575More quote details and news »C6L.SGinYour ValueYour ChangeShort position
(SIA.Singapore), which has a lot of routes to Europe, has been adversely affected.

So which Asian airline should investors ride on? Traditionally, it has been a toss-up between Singapore Airlines and Hong Kong's
Cathay Pacific Airways
(293.Hong Kong). Right now, Cathay seems like a better bet. Singapore, also known as SIA, has a bigger exposure to weaker Europe, while Cathay has a closer ties to North America. Australia, whose economy is going through a softer patch, is another key route for SIA. Moreover, SIA has a cost problem, says Credit Suisse's Timothy Ross. Over the past 10 years, the Singapore dollar has gained substantially against the U.S. dollar, which makes SIA less cost-efficient. With its base in Hong Kong, where the currency is pegged to the U.S. dollar, Cathay has been a big beneficiary of dollar weakness.

CLSA's Wan has a target price for Cathay Pacific of HK$17.43 (US$ 2.25), about 25% higher. He estimates Cathay's earnings will grow 224% this year, to HK75 cents, and another 114% next year. Cathay trades at about 8.4 times Wan's 2014 earnings forecast, or slightly less than book value. At the peak of a cycle, Cathay stock trades between 1.5 times and two times book. Wan expects inbound visitor traffic to Hong Kong to grow 8% this year and 10% next year, while resident departures should grow 5.5% this year and 7.6% next year. Cathay has also gone through a rapid fleet modernization recently, which is lowering its cost base.